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OllieChristopher

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We got on board with Dave Ramsey's debt snowball plan
I like not having debt. But no way I can get on board with Dave Ramsey's way of thinking. He wants you to get out of debt, save money and live like a homeless person until you die. I listened to his podcasts for a few months while working the night shift. Debt free is good. Living like a pauper instead of enjoying your life is not.

I'm not rich, I have no debt, good health insurance, and over 6 months living expenses along with a small monthly passive income that keeps a roof over my head and food on the table.

I pay cash for everything. No credit cards (debit card only). There is an argument to have credit cards, pay off monthly to get your credit score up. I don't need a credit score because I don't finance anything.

The only time I ran into an issue with not having credit cards was when renting a vehicle. In the end they have to let you use your debit card. The only disadvantage is you sometimes have to come up with a large cash deposit to secure the rental.

And I will never ever try to "keep up with the Jonese's". No matter how "rich financially" you think you are there is always someone who has more than you.
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rent

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many single Americans will have income of less than $40k per year in retirement. If that’s true, their marginal ordinary income tax would be 12%….. all money coming out of their 401(k) will be treated as ordinary income. BUT, if They were allowed to treat that income as capital gain (which most of it is), their tax would be ZERO On most of that money.
The statement above, about 0% tax treatment on CG, while true in theory (first $40,000 LTCG taxed at 0%* for single, 2021, if no other income), it usually will not work for most. The reason? Social Security. A person who can receive ~$40K in RMD when they start retirement must have at least $1 million saved in retirement accounts (27.4 RMD distribution period). If so, I'd imagine they would have a sizable SS benefit as well. That SS benefit would quickly erode into their $40,000 LTCG that would be taxed at 0%, if they had chosen your strategy of investing in after-tax accounts.

I'm not saying the 0% scenario can't play out, it just requires some very unusual circumstances, such as a person not having much earned income during accumulation phase (thus very small SS benefit), but just enough to max out on IRA, etc. On the other hand, they would have a sizable passive income so they are probably rich, early retired, and mall crawling in a 392 XR anyway.

(* Do not take tax advice from random people on the internet).
 
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wibornz

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I like not having debt. But no way I can get on board with Dave Ramsey's way of thinking. He wants you to get out of debt, save money and live like a homeless person until you die. I listened to his podcasts for a few months while working the night shift. Debt free is good. Living like a pauper instead of enjoying your life is not.

I'm not rich, I have no debt, good health insurance, and over 6 months living expenses along with a small monthly passive income that keeps a roof over my head and food on the table.

I pay cash for everything. No credit cards (debit card only). There is an argument to have credit cards, pay off monthly to get your credit score up. I don't need a credit score because I don't finance anything.

The only time I ran into an issue with not having credit cards was when renting a vehicle. In the end they have to let you use your debit card. The only disadvantage is you sometimes have to come up with a large cash deposit to secure the rental.

And I will never ever try to "keep up with the Jonese's". No matter how "rich financially" you think you are there is always someone who has more than you.
I used to be like you. paid cash for everything, only used a debit card occasionally. Then I realized that there were cash back credit cards. I put everything on cash back cards that I can. I almost never use cash anymore. Pay all the bills that will take a card with a cash back card. Then pay it off each month. about the only time I use my debit card is to deposit cash into the bank.

One of my best cash back cards offer up to 5% back on the first $8000 that I spend each year.

Mind you this is money that I already plan to spend. I ensure that the card is paid off each month. It is an easy online transfer and take about 10 seconds. When the cash back rewards get up to around $800 to a $1000, I stop into the bank and take the cash back in the form of cash and put it up in case I need cash for a purchase. Heck never know what I may stumble upon on Facebook market place.... or for sale on JLwranglerforums.com

Of course the credit card is hoping that you don't pay it off. I have been doing this for about 5 years now and have easily gotten back about a $1000 each year just by not using cash or my debit card.

Also the fraud protection is better on a credit card vs a debit card.
 

Andrews jl

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I think that your hypothetical numbers actually show what I am trying to articulate. the Dollar that went into your 401(k) 40-years ago likely went in at a marginal tax rate of 15% because you were young and not earning much. It doubles 4x during that period. All of that “capital gain“ which should be taxed at 15% cap gain rate (using your example above) is actually taxed now on the margin at ~19% Since it’s all “ordinary income” (Note, I think that the hypothetical person above has a marginal tax rate of 22% for 2021….. https://www.morganstanley.com/content/dam/msdotcom/en/themes/tax/2021_federal_tax_tables_final.pdf) So, your person above is paying MORE tax on the original dollar invested AND paying more tax on the “capital gain” since it’s ALL treated as ordinary income.

there are a million ways to work the numbers here and all depend on personal circumstances but consider this:

many single Americans will have income of less than $40k per year in retirement. If that’s true, their marginal ordinary income tax would be 12%….. all money coming out of their 401(k) will be treated as ordinary income. BUT, if They were allowed to treat that income as capital gain (which most of it is), their tax would be ZERO On most of that money. So they pay more tax….. then flip the script and consider those folks with a much larger 401(k) and other investments……. The same issue arises, the RMD of a 401(k) along with other sources may put them into the 28% or higher bracket in large part because the 401(k) RMD is all treated as ordinary income.

don’t get me wrong, a traditional 401(k) is a solid choice for folks, especially with an employer match and I think all folks who have the option to signup for one should….. Roth 401(k)’s help to fix this taxing “problem’ but there are likely complexities there too.

hope all of that makes sense and, OP, sorry for the hijack.

For the record, I’m an early retiree from a Fortune 500 having spent years in M&A and Venture Capital.
Wow…you are right on the money (. See what I did there.)
Very well said and I completely agree …to a point..
But this probably isn’t an appropriate forum for this discussion ( I did it Again. haha)
Anyway, I’m glad you’re able to enjoy the rewards from your years of working and planning
CHEERS!
 

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desmo2

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I like not having debt. But no way I can get on board with Dave Ramsey's way of thinking. He wants you to get out of debt, save money and live like a homeless person until you die. I listened to his podcasts for a few months while working the night shift. Debt free is good. Living like a pauper instead of enjoying your life is not.

I pay cash for everything. No credit cards (debit card only). There is an argument to have credit cards, pay off monthly to get your credit score up. I don't need a credit score because I don't finance anything.
I used the Ramsey plan to get debt free. While I have stayed fairly frugal, I haven't followed (or even remember) the subsequent steps in his plan. I continued to pay into a retirement account despite having a profession with a pension, and I keep a sizeable emergency fund.

But, I don't live like a pauper. I do what I want and buy what I want...but I am more responsible about it. I still took a loan on my Jeep (0% for 3 years), and I still use a credit card for most purchases because of the rewards...but I pay it off every month.

Once you pay off your debt and achieve a few other steps to set up your future, it is up to you how rigidly you adhere to his plan.
 

OllieChristopher

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I used to be like you. paid cash for everything, only used a debit card occasionally. Then I realized that there were cash back credit cards.
You have been very lucky my friend. If you read every word of the dozens of pages in the terms and conditions of those "cash back" cards, they can change the terms and conditions at any time without notification to the customer.

It's all good though. If it works for then kudos to you!! A word of advice though. Make sure you pay your credit card debt right after using the card. Like next day after. Another clause buried in the terms and conditions is they can change the due date up to a 28 day "pre-cycle" and hit you with huge fees and penalties.

Credit card companies are not your friend. You have to work extremely hard to get those cash back and flight points.
 

csjlu

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Mutual fund manager. As with some prior posts, you couldn't guess what I do or what I'm worth if you ever saw me....bone stock JLU, frayed shorts, old Sambas and a Hokies or Hotspurs t-shirt. I don't attract attention, and that's the way I like it.

I got rich young by saving like crazy, investing what I saved, and living the Dave Ramsey lifestyle when I was in my 20/30s. When my net worth grew, my address changed but my lifestyle did not - and I raised my kids in such a stripped down way that they had no idea what I'm worth. The only time I bought a new truck was for my 50th birthday - strictly used rides prior to that.

I will admit that It does hurt to read some of the weapons of financial mass destruction that get touted on this board (and even in this thread) like ill-advised loans and leases and -NPV mods, but I always bite my tongue. It's not my life, and my advice would be unsolicited - the worst kind.

But I would not equate expensive Jeeps and mods with wealth. Chris Rock's "rich vs wealthy" bit on people blowing money on spinning rims that keep them from achieving wealth is as true a statement as anything you'd hear from Dave Ramsey or a CFP.
 

Luxy60

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Dave Ramsey did the largest study on millionaires ever produced. Guess how many millionaires bought new vehicles??? Almost none. They buy vehicles that are a couple of years old and let the Fake Rich middle class take the depreciation hit.

Not in 2021 they don't, at least if they're looking to buy a used 2 - 3 year old JK/ JL - they've appreciated. Cheaper to buy new, in some cases, until Covid becomes endemic and the supply chain's return to a semblance of normal.
 

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Avar928

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I'm on the low end of middle class for my area but have a decent cushion for my age having started investing in my mid 20s. I would save more if I didn't like food so much.
 

runningshoes

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You have been very lucky my friend. If you read every word of the dozens of pages in the terms and conditions of those "cash back" cards, they can change the terms and conditions at any time without notification to the customer.

It's all good though. If it works for then kudos to you!! A word of advice though. Make sure you pay your credit card debt right after using the card. Like next day after. Another clause buried in the terms and conditions is they can change the due date up to a 28 day "pre-cycle" and hit you with huge fees and penalties.

Credit card companies are not your friend. You have to work extremely hard to get those cash back and flight points.
Neither of these statements is correct today - in both cases the CC companies need to notify you in advance. I'm with Wibornz on this one - smart use of CC can provide great benefits for travel or cash back options.
 

Windshieldfarmer

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Dave Ramsey did the largest study on millionaires ever produced. Guess how many millionaires bought new vehicles??? Almost none. They buy vehicles that are a couple of years old and let the Fake Rich middle class take the depreciation hit.
This is so true…and I’ve done this with many of my vehicles except for my Jeep(s). I would rather spend money on appreciating assets rather than stuff that depreciates. That said, as I get older it’s not about accumulating wealth anymore but more about living. My goal is not to make my kids wealthy….but to have financial security, share great experiences with family and friends, and be generous when needed.
 

wibornz

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You have been very lucky my friend. If you read every word of the dozens of pages in the terms and conditions of those "cash back" cards, they can change the terms and conditions at any time without notification to the customer.

It's all good though. If it works for then kudos to you!! A word of advice though. Make sure you pay your credit card debt right after using the card. Like next day after. Another clause buried in the terms and conditions is they can change the due date up to a 28 day "pre-cycle" and hit you with huge fees and penalties.

Credit card companies are not your friend. You have to work extremely hard to get those cash back and flight points.
I usually pay the balance about 10 days before the end of the billing cycle/payment date.


Another strategy that I used was I would pay all my monthly recurring bills 21 days in advance. This made it so that at anytime, both my check and my wife check was free and clear if we wanted to do something with out getting into our savings. We could hold off for a full pay period and pay zero bills and still be able to pay them on time. It was a nice way to take a vacation without having to specify save for it.
 
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wibornz

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Dave Ramsey did the largest study on millionaires ever produced. Guess how many millionaires bought new vehicles??? Almost none. They buy vehicles that are a couple of years old and let the Fake Rich middle class take the depreciation hit.

Not in 2021 they don't, at least if they're looking to buy a used 2 - 3 year old JK/ JL - they've appreciated. Cheaper to buy new, in some cases, until Covid becomes endemic and the supply chain's return to a semblance of normal.
Vehicle that I drove as a daily driver. The majority of my daily drivers, High school kids would not drive.

Geo Tracker paid $400 after 4 years used it as a push pull and drag trade in for $2000

Toyota B210 paid $200 for it drove it almost 2 years sold it for $100

Suzuki Are paid $8000 drove it for 220,000 miles sold it for $600 It was beat, hit 4 deer with it and took out some mail boxes. The body was rough, but it ran great.

GMC Jimmy, paid $800 sold it for $600 after 3 years.

I could go on and on. The JLUR was the second new vehicle I ever bought. I did put a big down payment on it.
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